Whilst it may not feature on your radar all that often, the EU is very much in control of the UK’s trade regulations. For some, this is reason to rejoice, because it means a fair economy for every member state. For others, namely Brexit campaigners petitioning for the UK to leave Europe, it’s unnecessary red tape. With so much toing and froing, it can be difficult to separate the propaganda from the facts.
There’s no doubt that the final decision will affect us all in some capacity. However, the question for small businesses is how will this impact on us both now and in the future? Whilst there might not be an immediate answer, there are early indicators of what a leave vote would mean for small businesses in Milton Keynes and beyond.
Since the UK is currently part of the EU, it is also governed by EU trading regulations. For the majority of small businesses, this is a positive, because it means they can trade freely with all 27 member states. In numerical terms, small businesses aren’t limited to the 64 million consumers in the UK — they can also access the rest of Europe’s 505 million population.
For a startup in Milton Keynes, this can make a big difference. If you operate in a particular niche, for example, snowboarding, then you might find that the majority of your consumer base comes from outside the UK. Your headquarters might be in the UK due to its familiarity and accessibility, but, for the most part, your trading will take place outside its borders.
In the event of our exit from the EU, the location of your business could suddenly become problematic. Once we isolate ourselves from the rest of continent, we will be free to write our own trading legislation, but we’ll also be separated from the EU’s free trade market. Not a problem if you’re in an industry such as fishing, which is currently restricted by EU regulations. But, for those small businesses that receive the lion’s share of their income from overseas, the advantages are less obvious. Whilst we may be able to opt into a new free-trade agreement with the EU (much like other countries have done in the past), we couldn’t guarantee the same level of stability.
In January 2015, the EU announced that the legislation for VAT in digital services would be changing. Previously, the rate of VAT had been based on the rules of the seller’s country. However, since last year, VAT rates have been dictated by the consumer’s country of origin.
What this has meant for small businesses in Milton Keynes is a major price hike. Freelancers and micro-businesses, who rely on steady sales figures to break even, have had to increase their prices, in order to continue selling in places where the VAT rate is higher than the UK. For example, in Portugal the VAT rate is 23% compared to the 20% companies are expected to pay here. Digital service providers who trade in Portugal have therefore had to raise their prices, in order to offset the extra cost of paying tax there.
The hope for many Brexit supporters is that separation from the EU would allow businesses to go back to trading under our rules. This would enable anyone who operates a digital service to avoid the fluctuating VAT of other European countries and go back to a fixed British rate.
Over the last few years, the UK, with help from EU legislation, has begun to address the imbalance between high skilled and low skilled jobs in the country. Many of the jobs created have directly benefitted SMEs, with 86% of the job increase since 2010 coming in high or medium skilled labour. During the recession, employment opportunities for these workers were at an all time low and the lack of expertise available made it difficult for businesses to grow and develop. However, presently, the UK seems to be drawing closer to a finely balanced workforce again.
The fear amongst some government officials and business owners is that an exit from the EU would leave us back where we started. The EU currently provides small businesses with funding via the European Investment Bank. It’s this money that helps them form, grow and expand across the continent. Without it, UK businesses would only receive money directly from our government, the success of which would all come down to our financial security. In the worst case scenario, we would see the number of high-skilled workers fall once more, similar to the financial crash seven years ago.